Julian Castro confirmed as secretary of Housing and Urban Development

The Senate voted Wednesday to confirm San Antonio Mayor Julián Castro as secretary of Housing and Urban Development, putting the rising political star in the middle of the thorny debate over housing policy and providing him with a platform to boost his national profile.

The vote was 71-26, with 18 Republicans voting in favor of the nomination.

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Castro, 39, was nominated for the job by President Barack Obama in May and had a smooth path to confirmation, garnering Republican support along the way and facing little to no opposition in the Senate.

”I know that together with the dedicated professionals at HUD, Julián will help build on the progress we’ve made battling back from the Great Recession — rebuilding our housing market, reducing homelessness among veterans, and connecting neighborhoods with good schools and good jobs that help our citizens succeed,” Obama said in a statement following the vote. “Julián has lived the American dream in his own life, and I’m confident he will help Americans across our country seize their own piece of that dream for themselves and their children.”

Most of the Republican support for Castro came from party moderates but also included Sens. Marco Rubio (R-Fla.), a potential 2016 presidential candidate, and Richard Shelby (R-Ala.), who could be Banking Committee chairman in the next Congress if the GOP wins control of the upper chamber.

The Cabinet post will give Castro, considered a potential vice presidential pick for the 2016 ticket, a chance to forge a presence in Washington and build relationships with officials across the country, given HUD’s role in helping cities with affordable housing and urban development projects.

But Castro will face difficult policy decisions in the new position as well.

The housing market’s recovery has slowed this year as borrowers with less than pristine credit have found it difficult to qualify for home loans. Meanwhile, renters have seen their wages stagnate and the amount of affordable apartments dry up.

“I see out there the urgency for more affordable housing opportunities in our urban communities in San Antonio but throughout the nation,” Castro said at a Senate Banking Committee hearing last month.

As HUD secretary, Castro will oversee the Federal Housing Administration, which insures mortgages typically for lower-income and minority home buyers and also provides financing for rental projects. Castro is expected to work both with housing advocates and industry officials to figure out how to free up credit both in the short and long-term so that it is easier to get a mortgage and financing for apartment developments.

One of Castro’s first challenges could be budgetary. The FHA had to take an unprecedented $1.7 billion infusion of taxpayer cash last year to cover a short fall in its insurance fund that was created mostly by home loans the agency backed during the housing market’s downturn from 2007 to 2009.

Republicans seized on the shortfall as evidence of a government program run amok and the House Financial Services Committee has held a series of hearings this Congress slamming the agency.

While the White House estimated earlier this year that the FHA had shored up its balance sheet and would avoid another draw from taxpayers, the agency won’t know whether policy changes, such as certain insurance premium hikes, were enough until the end of this fiscal year in September.

The rub is that any retreat from the mortgage market by FHA to shore up its finances also makes it harder for low-income and first time buyers to get a loan.

Castro will be under pressure from Democrats and housing advocates to find ways to make sure more loans are available while avoiding another shortfall that will provide ammunition for Republicans looking to hit the Obama administration.

“The health of the FHA has been the subject of tremendous scrutiny and debate,” Castro said at the hearing last month. “I believe that there can be action taken to ensure that FHA stays on a positive track. My understanding is that it is on a much more positive track than it has been.”

Castro will replace Shaun Donovan, who has been nominated to head the White House Office of Management and Budget.

Castro could also find himself in the middle of the debate over what to do with government-controlled Fannie Mae and Freddie Mac, which were bailed out by the government in 2008 but have since returned to profitability and returned the amount of taxpayer funds they received.

Legislation to get rid of the mortgage finance giants has advanced through both the Senate Banking and House Financial Services committees this Congress, but the bills are not expected to receive floor votes in either chamber this year.

Sen. Bob Corker (R-Tenn.), one of the main architects of the Senate bill, voted for Castro both in committee last month and on the Senate floor. He said in a brief interview after the vote Wednesday that he had spoken to Castro in private about Fannie and Freddie and expects the new HUD secretary to play a key role in future talks.

“Even though he’s a young man, he’s a mayor of a city,” Corker said. “I thought he was qualified, and that’s why I voted for him.”

Fannie and Freddie don’t fall directly under Castro’s jurisdiction, but as a top housing official for the administration it will be difficult for him to avoid the debate over what role the government should play in the mortgage finance system, a complicated policy dilemma that directly affects almost any borrower seeking to buy a home.

The administration earlier this year backed a bipartisan plan in the Senate that was opposed by some liberals worried it didn’t do enough on affordable housing and would give big banks too big of a role in the system that would replace Fannie and Freddie, which do not make loans but purchase mortgages and package them into bonds that are sold to investors to provide the funding for new loans.

Castro was careful in his answers during his June confirmation hearing.

“I do believe that the status quo is not in the best interest of Americans,” he said. “It would be preferable for the taxpayers not to be in the position of first loss and that the current conservatorship of Fannie and Freddie is not sustainable for the long term.”